TIGTA Report Reveals $68 Million in Backdated IRS Penalty Approvals

By Leo Unzeitig, J.D., CPA-San Antonio

Most of us know that IRC 6751(b) requires that revenue agents secure written managerial approval before asserting penalties against taxpayers. This is an important safeguard intended to prevent revenue agents from using penalties as bargaining chips during the audit process.

In LakePoint Land II v. Commissioner, T.C. Memo. 2023-111, we learned that at least two IRS agents were complicit in backdating penalty approval forms. The court found that the IRS lawyers knew or should have known that the representations to the court as to when the supervisor signed the penalty lead sheet were not accurate and that the lawyer failed to timely advise the court. The result was sanctions against the IRS, though notably not against the individual agents or counsel involved.

Following that decision, the Treasury Inspector General for Tax Administration (TIGTA) was tasked with determining how pervasive the problem is. They issued a report and it turns out the problem is not isolated.

The IRS looked at 1,268 syndicated conservation easement cases (the type of case at issue in LakePoint) and found that seven of them involved backdated penalty approvals totaling $68 million in penalties. The IRS ultimately conceded those penalties.

TIGTA s report redacted the number of employees who were at fault but stated that  disciplinary actions  were recommended. Those actions  ranged from non-disciplinary counseling letters to written reprimands.  Viewed against the magnitude of the conduct and the dollar amounts at state, those consequences appear modest.

It is hard to tell what the IRS s reasoning is because of redactions, but TIGTA suggests that the employees received light reprimands because the IRS  did not have a policy prohibiting the backdating of penalty approvals.

That rationale is difficult to accept. The requirement of timely supervisory approval is embedded in the statute itself and the integrity of the process should not depend on whether a manual expressly prohibits falsifying dates. If anything, these episodes underscore the importance of enforcing procedural safeguards with the same rigor the IRS expects from taxpayers.

Practitioners may reasonably ask whether similar leniency would be extended to taxpayers who fail to comply with clear statutory requirements. The answer is uncertain, but the comparison is difficult to ignore. Moreover, because TIGTA s review was limited to syndicated conservation easement cases, the broader scope of the issue remains unclear. In practice, the IRS asserts penalties in nearly every case. As a matter of simple probability, it is hard to believe that instances of backdated approvals are confined to this narrow subset.

Read: TIGTA-Procedures Are Needed to Prevent Backdating Penalty Approvals